Western Energy Services Corp (TSXV: WSV) Repositioned Company; Restructuring Showing Positive Effects. Sector/Industry: Oilfield Services.

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1 Brian Tang, CFA Analyst November 9, 2007 Investment Analysis for Intelligent Investors Western Energy Services Corp (TSXV: WSV) Repositioned Company; Restructuring Showing Positive Effects Sector/Industry: Oilfield Services Market Data (as of November 8, 2007) Current Price $0.08 Fair Value $0.08 Rating* HOLD Risk* 4 Speculative 52 Week Range $ $0.25 Shares O/S 168.0MM Market Cap $10.1MM Current Yield N/A P/E (forward) N/A P/B 1.0x YoY Return -57.9% YoY TSX-V 16.6% *See back of report for rating and risk definitions /8/ /22/ /6/ /20/2006 1/3/2007 1/17/2007 1/31/2007 2/14/2007 2/28/2007 3/14/2007 3/28/2007 4/11/2007 4/25/2007 5/9/2007 5/23/2007 6/6/2007 6/20/2007 7/4/2007 7/18/2007 8/1/2007 8/15/2007 8/29/2007 9/12/2007 9/26/ /10/ /24/ /7/ Highlights Through the acquisition of Stimsol and the divestiture of various assets, the company has shifted its exposure away from drilling activity and cycles to focus on stimulation and production optimization; The company has built a strong management, team, simplified its structure by dissolving the Grenville JV, and has identified many opportunities for growth; We believe the main challenges the company faces relate to an over all slowdown in industry activity, high debt levels, financing risks, and uncertainty with regard to the recent increase in Alberta royalty rates; While we have chosen to be conservative in our estimates, we believe upside will come from increases in margins and expansion to new geographic areas. So far the restructuring has gone well as the company has demonstrated an ability to grow revenues and improve its capital structure. Based on our DCF and EV/EBITDA valuation, we are lowering our fair value estimate to $0.08 from $0.50, and downgrading the company to a HOLD. We are maintaining our risk rating at 4- Speculative. Key Financial Data and Statistics (C$ 000's) 6M E 2008E Revenues 12,172 18,378 27,609 EBITDA 698 1,268 2,268 Net Income (2,425) (1,647) (941) Assets 30,215 30,598 29,907 Debt 14,254 11,731 4,823 Equity 12,649 16,369 21,376 EPS $ (0.01) $ (0.01) $ (0.01) EBITDA Margin 5.7% 6.9% 8.2% Western Energy Services Corp. (WSV) is a Canadian based oilfield services company. It operates primarily in West Texas and Canada. It has shifted its business away from new drilling activity to stimulation and production optimization services in order to reduce exposure to drilling cycles and gas prices.

2 Brian Tang, CFA Q Update Page 2 Company Overview Western Energy Services Corp. (WSV) is a Canadian based oilfield services company. It operates primarily in West Texas and Canada. It has shifted its business away from new drilling activity to focus on stimulation and production optimization services in order to reduce exposure to drilling cycles and gas prices. The company has two main operating divisions Stimsol Canada Inc and Western Energy Services of Texas Corp. Update on Strategic Direction and Activity Source: Company When we initiated coverage on WSV last year, the company was just starting to implement its strategy of shifting its focus on increasing production from older wells and away from newer wells. The acquisition of StimSol Canada was the first step in this new direction. Management felt that it could carve out a niche by focusing on everything but new drils in an attempt to insulate itself from drilling cycles and gas prices. Once this acquisition was complete, the company consolidated all of its Canadian operations under the StimSol name. In September 2006, the company entered the U.S. stimulation business with the acquisition of four new fluid pumpers, established fluid storage facilities, and laboratory services at its Texas location. It also used StimSol s technologies as an entry into the U.S. stimulation business. The company also consolidated its U.S. and Canadian operating centers to achieve operational synergies. WSV currently operates from 4 locations in Canada and in Texas. The company also continued to operate in the downhole tool rental business, by expanding into Nicaragua in November 2006, through its agreement to provide downhole tools and directional services to Norwood Resources Ltd (TSXV: NRS). Nicaragua represents the third Latin American country where WSV has operated.

3 Brian Tang, CFA Q Update Page 3 In March of this year, the company announced that it had entered into an agreement with Grenvile Energy Partnership (GEP) to acquire al of GEP s oilfield service equipment for $12.5 million. This represented the end of the joint venture between GEP and WSV where WSV acted as the operator for equipment owned by GEP. The acquisition was financed with a new $4.1 million credit facility and the issuance of a convertible debenture. The transaction greatly simplifies WSV s financial statements, and eliminates what we believed to be a form of off balance sheet financing. Under the original agreement, Grenville was to purchase equipment for up to $16 million for WSV. The two shared revenues under a set formula. According to management, the recent purchase of assets by Western from Grenvile was done at arm s length with both parties in agreement. The next step WSV took in shifting its focus into the optimization of existing wells was the sale of its well testing assets to TestAlta Services Ltd. for $1.6 million in April The well testing services business is highly competitive and exposed to drilling cycles and commodity prices. By exiting this business, the company further focused the company on well optimization through stimulation services. With the proceeds of this sale, the company reinvested in additional acid and nitrogen pumping equipment. This additional equipment has allowed the company to offer a complete range of well stimulation services without having to bundle services of third parties. We believe that this move will increase the company s margins as the bundling of third party services usualy serves to reduce margins. Future Growth Strategy More recently, On August 8, 2007, the company announced that it had divested of its Plata- Inca mining property in the Yukon Territories for proceeds of $1 million. We believe this was a good strategic move as it provides the company with some much needed capital, and further demonstrates management s commitment to focus the company on its core busines. The company s future growth strategy is to continue adding equipment in the production optimization segment. On the cost side, WSV will continue to reduce costs and inefficiencies. The company has identified a number of areas in the U.S. and Canada where it can expand. The following images summarize these areas of planned expansion. Source: Company; *Utah not shown above

4 Brian Tang, CFA Q Update Page 4 Source: Company The company estimates that in Alberta and the U.S., the are about 362,000, and 1.8 million existing wels respectively, that have the potential to use WSV s services. This figure wil continue to grow as new wells are drilled each year. Management and Board of Directors Since our initial report, the management of WSV has undergone some changes with new additions and departures to the team. We present a summary of the current management team and board below. We believe WSV has a solid management team comprising of individuals with many years of experience in the oilfield services industry, and in building oilfield services companies, and creating shareholder value by subsequently selling them. John Halliwell (Chairman) Since 1995, John has been the president of Anacort Capital Inc., a private investment firm. From , he was the president and CEO of WSV s predecessor company, BFF Resources. He has also held senior executive positions with Penn West Petroleum and Petro Canada. Jim McQuarrie (President & Chief Executive Officer) Jim has over 30 years of Canadian Oilfield Service Industry experience. From 1976 to 1988, Jim worked in various progressive service industry positions for companies which included Dresser Titan, Nitrogas Services, Halliburton and Canadian Oilfield Stimulation Services. Jim founded StimCo Services Ltd. in 1988, and with the development of this very successful stimulation company, Jim gained valuable management knowledge allowing him to move on after the sale to Sanjel Cementers. He then went on to found Tankmaster Rentals in 1996 which was sold in Furthering his experience, Jim then made substantial contributions to the startup of Onstream Compression Rentals, and then on to become President of HavaTank Rentals

5 Brian Tang, CFA Q Update Page 5 which was sold in the fall of Jim then spent time as an independent business consultant helping private business owners to grow and develop their businesses before assuming the position with Western Energy Services Corp. Jon Garner, B.Sc., (Vice President & Chief Operating Officer) Jon is a recent addition to the team since our initial report. He has over 26 years of Canadian Oilfield Service Industry experience. He was a founding partner of Stinger Wellhead Protection Ltd., and then went on to play major roles in the development of StimCo Services Ltd, Redmen Services Ltd., and Ceda Reactor. He then assisted in the continued growth of StimSol Canada Inc. He brings to the company, industry expertise in well stimulation and remedial cementing technologies that will assist in the further growth of Western Energy Services Corp. Nick Pohorelic, CA (Chief Financial Officer) Nick has over 20 years of business experience. Nick worked with Deloitte Touche for 11 years where he provided audit services and a variety of financial services to clients. In 1997 he became the CFO for Underbalanced Drilling Systems, a publicly traded company, specializing in an innovative low cost replacement for nitrogen in high volume, underbalanced drilling applications. Nick's entrepreneurial experience includes serving as an independent financial consultant where he helped clients with financial management including Trinidad Drilling for whom he provided over 1,200 consulting hours in support of their IPO and forecasting. Nick first joined Western Energy Services when the company was in its infancy and became its second shareholder. Herb Ellis (Vice President - Canadian Business Development) Herb is a recent addition to the team since our initial report. He has over 26 years of Canadian Oilfield Industry Experience. He started his career with in the Agricultural Industry, as a technologist for UGG. Herb then completed his chemical technology diploma at Nait, then on to the analytical industry working for Chemex and Core Laboratories, as a station and accounts manager for 12 years. He then spent 4 years as an accounts manager and 2 years as Vice President of the Solvent and fluids division at Trysol Canada. Since then, Herb has spent 6 years as Manager/President of the company. He founded StimSol Canada. Herb brings extensive marketing, technical and Managerial experience to Western Energy Services Corp. Bruce Alford (Director) Mr. Alford is a partner in the Calgary law firm of Burnet, Duckworth & Palmer LLP. He has served as a director of the corporation since October of Mr. Alford is a director of several other private and public companies. Mr. Alford is a member of Western s audit and compensation commitees. Clarence Chow (Director) Mr. Chow is the President of AGS Capital Management Ltd., which management a number of investment funds specializing in energy and mining interests. He is a director of several companies and is a director and past Chairman of the Canadian Petroleum Institute. Mr. Chow brings considerable private and public company experience to Western. Companies that have benefited from his expertise include Morrison Petroleums Ltd, Alberta and Southern Gas Company Ltd, and Mountain Energy Ltd.

6 Brian Tang, CFA Q Update Page 6 Summary of Current Services In order for investors to gain a beter understanding of WSV s products and services, we believe that it is important to first give an overview of the life cycle of a typical hydrocarbon well so that investors can gain a better understanding of where exactly WSV has chosen to focus its operations. The following is a brief description of the various stages in the life cycle of a well (the first three steps relate to exploration while the last steps are related to development and production): 1. Seismic Survey This is conducted in order to map subsurface rock formations to find oil and gas. It is estimated that about 5% of an average E&P s capex budget will go towards seismic. 2. Drilling If seismic surveys identify a good underground target, an E&P will begin drilling. Drilling is usually contracted out to an oilfield services firm, and takes up the largest part of an E&P s capex budget. 3. Interpret Drilling Results After driling is completed, E&P s wil then evaluate the economic potential of the well. At this point, the E&P will decide whether to abandon the well or complete further testing such as a flow-test. Typically, oil field service companies are involved in this process as well. 4. Completion Involves various steps to get a well ready for production such as cracking or fracturing. This is done to improve well flows. It is important to note that many of the services discussed at this stage can be done on older wells as well in order to increase flows (i.e. remedial work). While completion is not an area of focus for WSV, the performance of remedial work is. 5. Artificial Lift - These are installed when a well cannot produce economically by its own means. 6. Gathering This involves transporting gas to market. 7. Servicing Just like any other piece of mechanical equipment, wells need to be serviced regularly to replace worn out parts including lifts and pumps. This step in the cycle is also where services are performed to optimize and enhance production. WSV focuses on this stage of the well life cycle. 8. Reclamation and Abandonment This involves filling in holes and addressing environmental requirements when al of a wel s hydrocarbons have been extracted.

7 Brian Tang, CFA Q Update Page 7 Given the changes in the company since our initial report, we now provide an overview of the company s existing service ofering. Stimulation Services - Western has a fleet of conventional acid pumpers and pressure trucks used to deliver a diverse line of acids, solvents and remediation chemicals used to enhance and optimize production from existing oil and gas wells. Fluids may be pumped down tubing or coiled tubing and can be energized with nitrogen. Source: Company These solvent and chemicals are used to remove waxes, asphaltenes, sludges, and scales. This segment of WSV s busines is not corelated to driling rig activity. In fact, demand for these services is often higher during times of slower drilling. Slower drilling results from lower current and expected commodity prices. When this happens, E&Ps often shift their focus and budgets to optimizing production from existing wells. The company has a proprietary blend of various acids, solvents, and specialized chemicals that can be used in a wide range of applications. Nitrogen Services - Western maintains a diversified fleet of pumpers in strategic locations. Personnel are experienced in all applications. Nitrogen pumped into a wellbore improves the safe recovery of fluids by lightening or displacing them, while reducing the potential of formation damage. Nitrogen increases the ease with which oil or gas from a well flow to the surface. Due to its properties as an inert gas, it is intrinsically safe, meaning there is no risk of it causing an explosion or fire. Also, because it is abundant, it is easily accessible and widely used in the oilfield.

8 Brian Tang, CFA Q Update Page 8 Source: Company Coiled Tubing Services WSV specializes in providing shallow and intermediate depth coiled tubing services (Class 1 and Class 2). Coil tubing is a rig-less services used to enter wellbores with endless pipe and place fluids downhole, or to blow down the wellbore to clean it out. Source: Company Downhole Tool Rentals -Western has an extensive inventory of downhole drilling equipment including driling jars ranging from 4 3/4 to 8 in diameter, as wel as shock stubs and stabilizers.

9 Brian Tang, CFA Q Update Page 9 Industry Outlook As WSV operates in Texas and the U.S., it is necessary for us to review the outlook for drilling and commodity prices in the U.S. and Canada. Drilling activity in the WCSB continues to be weak as the table below shows. Alberta Rigs Q1 Q2 Q3 YTD AVG Utilization AVG Utilization AVG Utilization AVG Utilization 2007 Available Drilling % % % % 2006 Available Drilling % % % % Source: CAODC, FRC Drilling rig utilization in Q was only 13.3% compared to 36.2% in Q This decline in utilization has continued into Q3. As the table above shows, Q3 utilization is only at 33.6% versus 61.5% during the same time last year. Year to date, rig utilization is only at 34.6% versus 61.6% last year. There are a number of reasons for the decline in activity including: a decrease in natural gas prices relative to 2005, an increase in LNG imports, and a strong Canadian dollar. We had originally expected industry activity to increase in the later half of However, after a review of current and expected industry activity, and an analysis of the announced 2008 budgets for many of the producers, we now believe that industry conditions will not improve until the later half of 2008 or even We continue to believe that natural gas fundamentals are strong in the long run, and will support higher prices as the graph below shows. AECO Spot C$/mmbtu C$/mmbtu E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E Year Source: GLJA Although natural gas prices are expected to keep increasing, they are not expected to reach 2005 levels till at least The outlook for Henry Hub, the benchmark for natural gas prices in the U.S., is similar to that of Canada. In contrast, the drilling activity in the U.S. has been quite different than that experienced in Canada. U.S. data has shown that drilling activity in the U.S. was actually at record high levels.

10 Brian Tang, CFA Q Update Page 10 However, recent data shows that U.S. activity is starting to decline which we believe may signal the start of a trend in reduction in activity though it is too early to tell. As mentioned, WSV is relatively insulated from drilling activity because of it shift in focus to stimulation services. The table below shows that service rig utilization, an indicator of workover activity, is declining as well albeit at a less severe rate than drilling rig activity. Average Monthly Service Rig Count Working Down Total % 07/06 Change 2007 August % -20.0% July % -15.6% June % -23.2% May % -13.2% April % -7.8% March % -8.1% February % -3.0% January % -5.3% 2006 August % Source: CAODC, FRC July % June % May % April % March % February % January % Increases in Royalties in Alberta Financial Analysis What the above table indicates to us is that all segments of the Canadian oilfield services industry are experiencing a slowdown. Compounding the issue of weak drilling activity in Canada is the recent decision by the Government of Alberta to raise royalty rates on hydrocarbon projects in that province. While the impact varies depending on the type of project, and depth of well, we believe it will still result in a further reduction in overall utilization rates and fewer wells drilled across the province. As a result of the way the announced royalty changes are structured, the impact will be felt less on companies involved in deeper drilling, and lower productivity wells. We believe that since Western has shifted its focus to remedial work, and because of its Texas operations, the impact of higher royalties will be felt less though we believe that all companies, including WSV, will feel some impact. Since the company has gone through a lot of changes in terms of acquisitions and divestitures since we initiated coverage, we do not feel that an analysis comparing most recent and historical results wil give us much insight into the company s prospects going forward. The company reports results under two segments: Well Services and Tool Rentals. Capital Structure and Cash Flows - On October 1, 2007, the company announced that it had the completed a non-brokered private placement raising $6 million by issuing 60 million units at $0.10 per unit. Each unit is comprised of one common share and half of a non-transferable common share purchase warrant. Each warrant is exercisable at $0.16 for a

11 Brian Tang, CFA Q Update Page 11 period of 18 months from the date of issuance to purchase one common share of WSV. The units are subject to a four-month hold period from the date of issuance expiring on January 29, The company used about $5.7 million of the proceeds from this financing to retire part of the WSV s convertible debenture, and the rest is to be used for capital expenditures. Mainly as a result of the Grenvile transaction, the company s capital asets have increased from $13.7 million at year-end, to $24.5 million at the end of the third quarter. However, as the purchase of assets from Grenville was recorded as a non-cash transaction, there is no resulting cash flow in the cash flow statement related to this purchase. We believe that this is a critical time for the company in terms of cash flow with over $7 million in debt coming due in the next two fiscal years. However, the company has demonstrated its ability to refinance debt and/or negotiate favorable terms. For example, it recently extended, by one year, a $2 million bridge loan that was due this year with a reduction in the interest rate from 21% to 12%, and secured an additional $500,000 line of credit, all during a period of slow industry activity. We expect that free cash flow in 2007 will be insufficient to repay the debt coming due, and have assumed that the company will raise an additional $3.8 million in equity. We also believe that the company will have to raise an additional $5.9 million in FY2008, after which time we believe that the company will become free cash flow positive. Earlier in the year, on August 8, 2007, the company also announced that it had sold its Plata-Inca mining property, located in the Yukon Territory, for much needed cash proceeds of C$1 million. Recently, the company also sold two inactive shallow coiled tubing units for US$1.44 million. Revenues -According to the company s presentation material, it estimates that it has a les than 1% market shares in frac fluids and a 20% share in value added solvents in Canada. We believe that the locations identified by management earlier in our report are evidence that it still has significant room to expand in Canada and the U.S. Simsol revenues in Canada have grown at an impressive CAGR of about 58.6% from Note that they have continued to grow despite years when the price of gas declined year over year ( and ). The company believes it can grow revenues by about $862,667 for each pumper its adds in Western Canada. The company plans to add three new pumpers this year. In Texas, the company has grown revenues from about $250,000 per month, to about $425,000 by adding kill units (pumpers with trailers). We have assumed that the company will continue to grow at historical rates for the next two years, and then modeled for growth to gradually decline through to our terminal period. The table below summarizes our revenue forecast for the next two years. W e s te rn E n e rg y S e rv ic e s C o rp - S e g m e n te d R e s u lts ($ s ) 9 M O 9 M O E E R e v e n u e W e ll S e rv ic e 9, , , ,6 1 3 T o o l R e n ta l 1, , , ,9 9 6 T o ta l 1 0, , , ,6 0 9

12 Brian Tang, CFA Q Update Page 12 Note that the company s actually revenue target for FY2008 is $49 million. This is based on more aggressive capex estimates, and we have chosen to be more conservative in our models given the outlook for the industry. We assume that capex for 2007 will be $5.8 million, and then $1 million thereafter for maintenance purposes. The company has confirmed that it does expect growth even with minimal capex. Margins For the 9 months ended September 30, 2007, the company achieved segmented operating margins of 18.2% for the well service segment and 28.6% for tool rentals. Going forward, the company expects to achieve field margins of 25-30% for its services segment. For conservatism, we assume margins in well services will be 18.3% for the remainder of the year, and increase to 20% after that. We also assume that tool rental margins remain constant at 28.6%. Margins could very well increase beyond our assumptions due to the company using less third party bundling. However, at this time, we chose to wait for more evidence of improving margins before making adjustments to our model. Net Income and EPS estimates Based on the above assumptions, our 2007, and 2008, net income and EPS estimates for the company are a loss of $1.6 million (-$0.01 EPS), and $941,000 million (-$0.01 EPS) respectively. Valuation We have valued the company based on our DCF model and EV/EBITDA multiples. The result of our DCF model is shown below. Western Energy - Discount Cash Flow Model (C$ MM) 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E Terminal Funds From Operations 1,244 2,164 3,224 3,826 4,621 4,764 4,895 4,965 5,042 5,128 5,221 Investment in Working Capital (748) (258) (354) (284) (369) (80) (84) (53) (54) (56) (58) Cash From Operations 496 1,906 2,869 3,543 4,252 4,684 4,811 4,912 4,988 5,072 5,164 Capex (5,804) (1,000) (1,000) (1,000) (1,000) (1,000) (1,000) (1,000) (1,000) (1,000) (1,000) Free Cash Flow (5,308) 906 1,869 2,543 3,252 3,684 3,811 3,912 3,988 4,072 4,164 PV (5,160) 786 1,449 1,759 2,009 2,032 1,877 1,720 1,566 1,427 15,763 Discount Rate 12% Terminal Growth 3% Sum PV (MM) 25,229 Debt (MM) 14,254 Equity Value (MM) 10,976 Share O/S (MM) 168,007 DCF Value/Share 0.07 Based on our DCF model, the company s fair value is $0.07 per share. We also valued the company applying an EV/EBITDA multiple of 8x, which is the industry average, to the company s 2008E EBITDA (we did not use 2007 as the company s debt exceeds its EV in 2007). This resulted in a fair value of $0.08. Rating Based on a review of the company s operating and financial results, and the value derived from two valuation models, we are downgrading the company to a HOLD and reducing our fair value to $0.08 from $0.50. We are maintaining our risk rating at 4-Speculative. We believe that the company has done a good job of repositioning itself to reduce exposure to the drilling cycle and simplify its capital structure by dissolving its JV with Grenville. Also, the company has acquired a company that has shown historical growth even in declining environments.

13 Brian Tang, CFA Q Update Page 13 However, we believe that the current conditions in terms of drilling activity, uncertainty over the impact of higher royalties, a high proportion of debt to capital, combined with the company s cash flow and debt maturity schedule wil present chalenges for the company. Investor should watch for potential upside if the company can expand into new areas, increase margins and capex growth. However, at this time, we take a wait and see approach. Risks Although the company has taken steps to reduce exposure to drilling activity, it is still exposed to overall oilpatch activity; The company has a relatively high debt to capital and what we believe to be an unfavorable debt maturity schedule relative to cash on hand and cash flow. If the company is unable to raise new equity or refinance debt, we believe it could be subject to credit problems. The company is indirectly exposed to commodity prices. Uncertainty regarding the recent decision of the Alberta Government to raise royalty rates will likely impact the overall activity in the industry.

14 Brian Tang, CFA Q Update Page 14 APPENDIX Western Energy Services Corp - Income Statement ($000s) 9MO 9MO E 2008E Revenue 10,439 12,172 18,378 27,609 Expenses Operating 7,983 9,801 14,691 21,814 G&A 1,987 1,460 2,205 3,313 Stock Compensation Total OP Expenses 9,971 11,474 17,110 25,340 EBITDA ,268 2,268 Gain on Sale 214 (13) (13) - FX 46 (421) (421) - Depreciation 1,051 2,049 2,691 2,892 EBIT (842) (918) (990) (624) Interest 241 1,375 1, EBT (1,083) (2,293) (2,535) (1,448) Tax (28) 132 (887) (507) Net Income (1,055) (2,425) (1,647) (941) EPS $ (0.01) $ (0.01) $ (0.01) $ (0.01)

15 Brian Tang, CFA Q Update Page 15 Western Energy Services Corp - Balance Sheet ($000s) Q E 2008E Assets Current Cash 545 (0) (55) AR 2,830 2,132 3,203 Inventory Prepaid Expenses Total Current Assets 4,381 2,940 4,354 PPE 24,465 26,290 24,185 Deferred Charges Goodwill Future Income Taxes Total Assets 30,215 30,598 29,907 Liabilities Current Liabilities AP 3,312 2,498 3,708 Bank Debt ST Debt 2,000 2,000 - Demand Term Loans 6,739 4,919 3,494 Convertible Note 3,434 3,014 (0) Current Capital Lease Current LT Debt Total Current Liabilities 16,382 13,418 8,074 Asset Retirement Obligations Capital Lease LT Debt 1, Total Liabilities 17,565 14,229 8,531 Common Shares 22,022 25,959 31,907 Surplus 1,681 1,681 1,681 Retained Earnings (11,053) (11,271) (12,212) Equity 12,649 16,369 21,376 Equity and Liabilities 30,215 30,598 29,908

16 Brian Tang, CFA Q Update Page 16 Western Energy Services Corp - Cash Flow ($000s) Q E 2008E Operating Net Income (2,425) (1,647) (941) Plus Depreciation 2,049 2,691 2,892 Stock Compensation Gain on Sale (13) (13) - Future Income Taxes Funds From Operations (175) 1,244 2,164 Investment in W/C A/R (204) 494 (1,071) AP (112) (1,366) 1,211 Inventory (214) Prepaid Expenses (108) (9) (185) Total Investment in W/C (391) (748) (258) Cash From Operations (565) 496 1,906 Investing Capex (5,804) (5,804) (1,000) Sale of Assets 2,618 4,058 Cash Used in Investing (3,186) (1,746) (1,000) Financing Revolving Credit (1,479) (1,479) ST Debt - - (2,000) Demand Term Loans 5,184 (1,425) (1,425) LT Debt (114) (437) (469) Convertible (5,712) (5,712) (3,014) Capital Leases (115) (89) - Equity 6,093 9,847 5,948 Cash From Financing 3, (960) Change in Cash 105 (545) (55) Cash BOP (0) Cash EOP 545 (0) (55) *-cash EOP = increase in bank debt

17 Brian Tang, CFA Q Update Page 17 Fundamental Research Corp. Equity Rating Scale: Buy Annual expected rate of return exceeds 12% or the expected return is commensurate with risk Hold Annual expected rate of return is between 5% and 12% Sell Annual expected rate of return is below 5% or the expected return is not commensurate with risk Suspended or Rating N/A Coverage and ratings suspended until more information can be obtained from the company regarding recent events. Fundamental Research Corp. Risk Rating Scale: 1 (Low Risk) - The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulated industry. The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capital structure is conservative with little or no debt. 2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively less sensitive to systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive free cashflows (though curent free cash flow may be negative due to capital investment). The company s capital structure is conservative with little to modest use of debt. 3 (Average Risk) - The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow are sensitive to economic factors although the company has demonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages, and coverage ratios are sufficient. 4 (Speculative) - The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start-up mode or in a turnaround situation. These companies should be considered speculative. 5 (Highly Speculative) - The company has no history of generating earnings or cash flow. They may operate in a new industry with new, and unproven products. Products may be at the development stage, testing, or seeking regulatory approval. These companies may run into liquidity issues, and may rely on external funding. These stocks are considered highly speculative. Disclaimers and Disclosure The opinions expressed in this report are the true opinions of the analyst about this company and industry. Any forward looking statements are our best estimates and opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness. There is no guarantee that our forecasts wil materialize. Actual results wil likely vary. The analyst and Fundamental Research Corp. FRC does not own any shares of the subject company, does not make a market or offer shares for sale of the subject company, and does not have any investment banking business with the subject company. Fees of less than $30,000 have been paid by WSV to FRC. The purpose of the fee is to subsidize the high costs of research and monitoring. FRC takes steps to ensure independence including setting fees in advance and utilizing analysts who must abide by CFA Institute Code of Ethics and Standards of Professional Conduct. Additionally, analysts may not trade in any security under coverage. 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